The Goodart Company is a manufacturer of clothing that sells its output directly to clothing retailers in Europe. It has a main department dedicated to producing T-shirts and next quarter will start producing jeans in a newly created department.

Currently the company is experiencing problems with the demand for the T-shirts in the market, but the owner considers that this situation is temporary and dazzles positive scenarios thanks to his networks with suppliers and clients from other countries.

In order to be prepared and to make the best decisions, the owner has asked to the accounting department to analyse different scenarios, for both departments, and to provide recommendations to make the best decisions for the company.

The first task assigned is related with the new production of jeans. Using the cost- volume-profit analysis the owner wants to know the break-even point, the margin of safety and the degree of operating leverage for the forthcoming period according with the following assumptions. The company has established for the jeans a budgeted sales revenue of 250.000 with an associated contribution of 137.500. The fixed production costs are 68.750 and the fixed selling costs are 13.750. The tax rate is 30%.

The second task is related with the T-shirts production. The owner asked to analyse the relevant costs and profits to facilitate the process of decision making according to different scenarios. The T-shirts department has a production capacity of 20.000 T-shirts per month. Because of the liquidation of one of its major customers, the company has excess capacity. For the next quarter, current monthly production and sales volume is expected to be of 10.000 T-shirts at a selling price of 15 per unit. The costs accounting information for the T-shirts department is as follows:

The Goodart Company T-shirts department -
Costs incurred for production of 10.000 units per month:
Direct labour	35.000
Direct materials	20.000
Variable overheads	15.000
Manufacturing overheads fixed	24.000
Administrative fixed expenses	13.000
Sales commissions	10.000

The Goodarts owner considers that the excess capacity is temporary and a client located overseas (Z fashion) has made two offers to the company:

1. a) to make an additional purchase of 5.000 units at 9 per unit. For these 5.000 units Goodart will not have to pay sales commissions, while the additional administrative costs of serving the 5.000 units are estimated to be 1.500 .

2. b) to make an additional purchase of 10.000 units at same price, 9 per unit, with additional administrative costs of 3.000 and no sales commissions but, the Z fashion would require its company logo be inserted on the T-shirts and Goodart has predicted that this will have an extra cost of 1 per T-shirt.

In addition, the Goodarts owner has received an offer to rent the entire production facility from the T-shirt department for 50.000 per month. If renting were an option, Goodart would have to meet the production of its 10.000 units of current demand committed to its customers. Therefore the owner has already explored the possibility of outsourcing production with a trusted supplier at a price of 12 per T-shirt. The fixed manufacturing overhead would be reduced by 14.000 and the administrative fixed expenses by 1.000, the sales commissions would remain unchanged.